Analyst Presentation 3 November 2010 Agenda Henry Engelhardt, - PDF document

Analyst Presentation 3 November 2010

Agenda Henry Engelhardt, Group Chief Executive Officer   Q3 Group highlights & introduction UK car insurance  Marketing Charlotte Bennett Marketing, Charlotte Bennett    Pricing, Peter Marissen UK Operations, Nick Weng Kan  Claims, Stuart Morgan Claims Stuart Morgan   Questions & Answers  International – focus on Italy  ConTe MD, Milena Mondini   Chiarezza.it MD, Francisco Garcia ConTe Deputy MD, Tommaso Gamaleri  Questions & Answers  2

How are we doing? Q3 2010 highlights  Group turnover* Q3 2010 increased by over 50% v Q3 09 to £446 million  Group vehicle count increased 28% v 30 September 2009 to 2.6 million  UK ancillary contribution per vehicle remains stable v H1 2010  No change in claims trends from H1 2010  Confused.com turnover is also stable v H1 2010, margins remain under pressure  Turnover from non-UK car insurance increased by 87% v Q3 09 to £19.3 million  Signed new quota share reinsurance deals for 2011 through to 2013 * Turnover is defined as total premiums written (including co-insurers’ shares) and other revenue 3

The new reinsurance deals 2.5% 2.5% 6.25% 2.5% 3% 8.75% 10% 6.25% 8.75% 2.5% 8.75% 3% 3% 10% 10% 11.25% 13.25% 13.25% 7.5% 2.5% 5% 7.5% 7.5% 50% 45% 40% New deals* are fixed cost 40% 40% of around 1.6 – 1.9% of around 1.6 1.9% including brokerage 27.5% 27.5% 27.5% 25% 25% 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 Underwriting Year Admiral Munich Re Swiss Re (old terms) Swiss Re (new terms) New Re Hannover Re ** ** Mapfre Re XL Re Flexible option * New deals refers to New Re, Hannover Re, Mapfre Re and XL Re * * Flexible option: allows Admiral to allocate the remaining 8.75% between New Re, Hannover Re and/or XL Re in 2013 4

What are we here for? An opportunity to meet the managers UK car insurance; Charlotte, Peter, Nic and Stuart will:  Remind you what they do  Highlight recent changes  Address some common queries “The Italian Job”; Milena, Francisco and Tommaso will introduce you to :  The Italian market  Chiarezza.it  Chiarezza.it  ConTe And of course we’ll answer some questions And of course we ll answer some questions 5

What I hope you’ll take away UK car insurance UK car insurance  There’s more to car insurance than you might think, everyone has a vital role to play  We like change, some of the key changes we’ll be talking about are:  Price comparison - has played to our strengths  Admiral’s growth - we have a scalable model  Economic environment - our low risk model has been resilient to recession “The Italian Job”  Italian market - has challenges but the growth of price comparison is a great opportunity  Chiarezza.it - is very young, we are using Group experience to build what we hope will become a leading price comparison site  ConTe - there is still work to do but so far we are on track to build a good car insurance underwriter underwriter 6

7 tt Charlotte Bennett B Marketing l tt Ch

Admiral marketing – an introduction Marketing team Marketing team Price comparison • Work with PC sites to maximise t team coverage and conversion d i We’re a small team • Advertising creation, planning of 27 people Advertising and buying campaign team • Supported by in-house studio • Ancillary products & partners Customer value team • Work closely with UK operations 8

Admiral marketing – what’s important to us? Marketing in a PC world Marketing in a PC world Our top 3 marketing metrics Our top 3 marketing metrics Clicks to insurer is largely determined 1. 1 PC click to sale conversion PC click to sale conversion b by policy price li i 2. Cost per vehicle acquisition Capture “clicks” as 3. Ancillary revenue per vehicle sales Maximise customer value t l 9

Key change: price comparison growth – UK Market UK market: majority of TV & Press spend is UK market: price comparison as % new now made by PC sites* business 140 140 pend (£m) 120 5% 100 34% 48% 16% 80 80 and Press S 59% 51% 60 45% 95% 38% 40 84% 57% 66% 24% 52% 41% 41% 20 20 TV 14% 10% 43% ‐ 2005 2006 2007 2008 2009 H1 2010 2005 2006 2007 2008 2009 H1 10 Insurers Price comparison *Source: Neilson, 50% of Moneysupermarket allocated to motor price comparison 10

Key change: price comparison growth - Admiral % of Admiral new business sourced from % of Admiral new business sourced from UK insurers TV and press spend p price comparison price comparison p p p 80 70 (£m) 60 d Press Spend 50 40 84% 80% 72% 30 TV and 47% 47% 20 10 ‐ 2007 2008 2009 H1 10 2007 2008 2009 H1 10 Churchill Direct Line Aviva (incl RAC) Admiral AXA / Swift Cover Esure Other  Already live on y Confused & MSM  02/08 Roll out to We’ve reduced above the line media as PC grows Tesco  May 08 – ceased to advertise Diamond on TV  07/07 Roll out to CTM  October 08 – ceased to advertise elephant.co.uk on TV  12/07 Roll out to Go  12/07 Roll out to Go (except for sponsorship) Compare *Source: Neilson, note this spend does not include sponsorship spend (including sponsorship of TV programs) 11

Common query: “Will price comparison unify motor insurers’ acquisition costs?” Admiral’s acquisition cost advantage over the Admiral s acquisition cost advantage over the market has increased 15% 15% 14% 14% 12% 12% 11% 6% 6% 6% 5% 5% 5% 2005 2006 2007 2008 2009 Market acquistion cost ratio Admiral acquisition cost ratio * Both cost ratios are on an earned basis. Market acquisition costs is per EMB analysis of FSA returns 12

It appears that price comparison has contributed to the largest players losing their “marketing edge” Aviva and RBSI have experienced erosion of Aviva and RBSI have lost share* their acquisition cost advantage their acquisition cost advantage* posures 8,000 21% 18% 18% e vehicle exp 6,000 17% 14% 11% 4,000 10% 10% Average 9% 9% 2,000 7% 7% 6% ‐ 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Aviva RBSI Aviva RBSI  Combined market share of 45% in 2005 falling to 33% in 2009  Big players, their experience influences the market as a whole * Per Synthesis analysis of FSA returns. Average vehicle exposures is the average number of vehicles in the year shown as per the FSA return data. 13

What about individual players’ acquisition costs? Top 10 private motor insurers acquisition cost ratios* 30% Market average RBSI 25% ehicles) hare market sh 20% 20% n average ve 15% 2009 (based on 10% Fortis 5% Admiral Aviva Esure LV RSA National National AXA / Swiftcover AXA / Swiftcover CIS Farmers 0% 0% 5% 10% 15% 20% 25% 30% 35% A Acquisition cost ratio i iti t ti  Theoretically PC levels the playing field in terms of the media element of acquisition costs...  However, to date there’s no indication that our peers are able to capitalise on this , p p * Per Synthesis analysis of 2009 FSA returns, market share based on average number of exposures (vehicles) 14

15 Peter Marissen i Pricing M P t

Pricing: an introduction We decide which price to charge each customer We decide which price to charge each customer   Analysis is focussed on how different parts of the portfolio perform relative  to each other Our analysis results in prices that are driven by   Claims experience  P i Price sensitivity iti it 16

Pricing: our analysis What’s important for our pricing analysis Data Approach • Maximum use of data • Focus on analysis • More detailed data • Common sense & innovation • High quality data • Quick & frequent changes • Use external data • Not afraid to do things differently differently 17

Key change: price comparison PC sites provide customers with almost 100% transparency of all insurers’ PC sites provide customers with almost 100% transparency of all insurers prices, this creates challenges for pricing:  Risk of winner’s curse  Easy switching 18

Price comparison: risk of winners’ curse “Winner’s curse”: an insurer comes top on price comparison when they shouldn’t and as a result write a large volume of poor quality business Comparison of new business loss ratio performance PC vs Non-PC (Non PC indexed to 1.00)  PC business is good quality it’s very similar  PC business is good quality, it s very similar to Non-PC business 1.02 1.00  We have not experienced winner’s curse Non PC PC  Average of 08, 09, & 10 underwriting year loss ratios Source: company data 19

Price comparison: easy switching PC vs Non-PC: renewal rate PC vs Non-PC: cancellation rate PC vs Non-PC: persistency rate (for year 1 renewals) 1.04 1.00 1.00 1.00 1.00 1.00 1.00 0 93 0.93 0.71 Non PC PC Non PC PC Non PC PC Lower cancellation more than But less likely to cancel before PC customers are more likely offsets higher switching leading offsets higher switching leading renewal to switch at renewal to better persistency Source: company data. In the above charts Non PC values for renewal rate, cancellation rate, and persistency rates are indexed to 1.0 and PC is shown relative to this 20